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Ask the Institute

DATE: May 19, 2014

QUESTION:

Can you explain the concept of Dollar-Cost Averaging?

ANSWER:
Dollar-Cost Averaging, or as this concept is more commonly called, Averaging Down, is a technique by which an option trader buys more of a security at a lower price than the price at which an initial quantity of the security was purchased. The purpose of this lower-price purchase is to reduce the average cost of the total position in the security. To learn more about the concept of Dollar-Cost Averaging, view this segment of "Ask the Institute."


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